Global real estate investment hits record high in 2019

Global commercial real estate investment reached an all-time high of US$800 billion in 2019, as investors continued to seek out the solid returns and relative stability of the asset class.

Transaction volumes last year rose 4 percent from US$769 billion in 2018, according to JLL.

“Real estate has continued to draw ever more interest from investors,” says Sean Coghlan, Head of Global Capital Markets Research at JLL. “Global investment is expected to stay elevated throughout 2020 as allocations to real estate from institutional investors continue to rise and, despite valuations and significant competition, the sector remains attractive relative to other major asset classes.”

While investment was up overall last year, activity was far from homogenous. Asia Pacific saw yet another record year with investment in the region rising each year since 2015, reaching a peak of US$169 billion in 2019. The Americas also saw growth, underpinned by the U.S. market as volumes rose by 12 percent to US$347 billion. On the other hand, investment in EMEA dipped by 5 percent to US$284 billion due to concentrated weakness in the UK due to Brexit and structural challenges facing the retail sector across the region.

Investors also are favoring established cities like New York, Paris and Tokyo amid “ongoing political uncertainty and a gradual slowdown of the global economy,” Coghlan says.

And while London remains the second-largest destination for cross-border capital targeting real estate, investment dropped 41 percent in 2019 compared to the previous year on the back of political uncertainty. But a rebound is expected this year, says Coghlan.

“The level of liquidity targeting London is expected to increase in 2020 with a Brexit resolution, particularly from overseas investors who are keen to exploit London’s yield arbitrage over other major European cities.”

Caution rising

As the real estate cycle extends into its tenth year, investors are becoming increasingly cautious. They’ve also faced the challenge of a near-record amount of capital targeting real estate sitting in funds across the world.

The competitive environment is encouraging more complex transactions in the market – such as secondaries, re-capitalisations and joint ventures – as investors seek to minimise risks and access product through new strategies.

Investors are also increasingly favoring locations and sectors that are resilient to economic or geopolitical disruption, says Richard Bloxam, Global CEO of Capital Markets at JLL,

“Cities that offer a diverse range of talent and innovation attract significant investment interest in the current global climate.”

Beyond the established global cities that have long benefitted from real estate investment, high-growth, mid-sized cities are attracting capital as investors follow corporate expansion.

“Mid-sized cities with innovation credentials, a highly qualified workforce and cost efficiencies are seeing economic growth and increased concentrations of human capital. These innovation geographies are attracting companies, and investors are following these enterprise trends, factoring in talent considerations and innovation potential as a means of mitigating risk and spotting future resilience,” he says.